Mathis v. Exxon Corp.

• Decision Date: 15 August 2002
• Docket Number: No. 01-40693.,01-40693.
• Citation: 302 F.3d 448
• Parties: James MATHIS, et al., Plaintiffs, James Mathis, Mohammed Abou-Harb, George Acosta, Musa Adi, Mazen Allaham, et al., Plaintiffs-Appellees, v. EXXON CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

302 F.3d 448

James MATHIS, et al., Plaintiffs James Mathis, Mohammed Abou-Harb, George Acosta, Musa Adi, Mazen Allaham, et al., Plaintiffs-Appellees, v. EXXON CORPORATION, Defendant-Appellant.

No. 01-40693.

United States Court of Appeals, Fifth Circuit.

August 15, 2002.

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Sylvia Gerald Davidow, George M. Fleming, Robert R. Herring, Jr., Rand Patrick Nolen, Anita Kawaja, Fleming & Associates, Paul B, Rosen, Law Office of Paul B. Rosen, Bellaire, TX, for Plaintiffs-Appellees.

Roger Dale Townsend (argued), Hogan, Dubose & Townsend, J. Michael Baldwin, Jefferson Gregory Copeland, Macey Reasoner Stokes, Claire Swift Kugler, Baker Botts, Houston, TX, Robert G. Abrams, Robert J. Brookhiser, Jr., Stuart H. Harris, Howrey, Simon, Arnold & White, Washington, DC, Jorge C. Rangel, Law Offices of Jorge C. Rangel, Corpus Christi, TX, William Rollins Hurt, Exxon Mobil Corp., Houston, TX, for Defendant-Appellant.

Appeals from the United States District Court for the Southern District of Texas.

Before REAVLEY, SMITH and DENNIS, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

This is a breach of contract suit brought by fifty-four gasoline station franchisees against Exxon Corporation ("Exxon") for violating the Texas analogue of the Uniform Commercial Code's open price provision. We affirm.

I.

Exxon markets its commercial gas bound for retailers primarily through three arrangements: franchisee contracts, jobber contracts, and company operated retail stores ("CORS"). A franchisee rents Exxon-branded gas stations and enters into a sales contract for the purchase of Exxon-brand gas. The contract sets the monthly quantity of gas the franchisee must purchase and allows Exxon to set the price he must pay. The franchisee pays the dealer tank wagon price ("DTW") and takes delivery of the gas at his station.

A jobber contract requires the purchaser to pay the "rack price," which usually is lower than the price charged to franchisees. There is no sale of gas to CORS by Exxon, because the stores are owned by Exxon and staffed by its employees. Instead, an intra-company accounting is recorded that is equivalent to the price charged franchisees in the same price zone.

All the plaintiff franchisees operate stations in the greater Houston, Texas, and Corpus Christi, Texas, areas. The genesis of the dispute is the allegation that Exxon has violated the law and its contracts with these franchisees for the purpose of converting their stores to CORS by driving the franchisees out of business.

Since 1994, franchisees have been barred from purchasing their gas from jobbers, so all their purchases have been governed by the terms of the Retail Motor Fuel Store Sales Agreement, under which the "DEALER agrees to buy and receive directly from EXXON all of the EXXON-branded gasoline bought by DEALER, and at least seventy-five percent (75%) of the volume shown in [a specified schedule].... DEALER will pay EXXON for delivered products at EXXON's price in effect at the time of the loading of the delivery vehicle."

This "price in effect," also know as the dealer tank wagon price ("DTW"), forms the heart of the present dispute. Exxon claims this arrangement is the industry standard and that almost all franchisor-franchisee sales of gasoline are governed by a similar price term. Plaintiffs respond that the DTW price charged under this clause is "consistently higher" than the rack price paid by jobbers plus transportation costs.¹

The franchisees originally filed Sherman Act, Clayton, Act, and Petroleum Marketing Practices Act ("PMPA") claims against Exxon in addition to the breach of contract claim. The antitrust claims were abandoned, and the district court granted Exxon a judgment as a matter of law ("j.m.l.") on the PMPA claims. The court retained jurisdiction over the purely state law causes of action that had been supplemental to the federal claims.²

Trial proceeded solely on the Texas breach of contract action, with only six plaintiffs testifying. The thrust of their testimony was that Exxon had set the DTW price at an uncompetitive level to drive them out of business (so as to replace their stores with CORS). Some of the plaintiffs testified that their franchises were unprofitable; they presented documents and witnesses to show that Exxon intended that result to drive them out of business.

The franchisees also submitted a market study showing that 62% of the franchisees in Corpus Christi were selling gas below the DTW price. The franchisees supported their theory of the case by calling Barry Pulliam as an expert witness on the economics of the gasoline market in Houston and Corpus Christi. Pulliam concluded that Exxon's DTW price was not commercially reasonable from an economic perspective because it was a price that, over time, put the purchaser at a competitive disadvantage. Pulliam noted that "commercial reasonableness" is a legal term, and he was not there to define it for the jury.

Pulliam's conclusion rested on two main facts. First, he showed that 75% of the franchisee's competitors were able to purchase gasoline at a lower price. Second, he calculated a commercially reasonable DTW price by adding normal distribution charges to the average rack price of gasoline charged by Exxon and its competitors. He concluded that Exxon's DTW price exceeded the sum of these other prices by four or more cents per gallon.

Exxon countered with Michael Keeley, who testified that Exxon's DTW price was commercially reasonable because it reflected the company's investment in land, the store, transportation, and managers. Keeley explained that Exxon recovers these costs through rent and the sale of gas.

The jury awarded $5,723,657 — exactly 60% of the overcharge calculated by Pulliam. Plaintiffs moved for attorney's fees, as authorized by TEX. CIV. PRAC. & REM. CODE ANN. § 38.001 (Vernon 2002), supported by a five-paragraph affidavit of lead counsel and an expert's affidavit opining that the fees were reasonable. The court granted fees of $2,289,462 — 40% of the damages. Exxon raises three issues on appeal: (1) The court should have granted Exxon's motion for j.m.l. on the contract claim; (2) the court erred in permitting Pulliam to testify; and (3) the fee award was erroneous.

II.

Exxon contends that because it charged its franchisees a DTW price comparable to that charged by its competitors, the breach of contract claim is precluded as a matter of law. We review the denial of j.m.l. using the same standards employed by the district court. Coffel v. Stryker Corp., 284 F.3d 625, 630 (5th Cir.2002). Although this is a state-law issue, the standard for granting j.m.l. is a question of federal law. Ellis v. Weasler Eng'g Inc., 258 F.3d 326, 336 (5th Cir.2001).

A j.m.l. is appropriate where "a party has been fully heard on an issue and there is no legally sufficient evidentiary basis for a reasonable jury to find for that party on that issue." FED.R.CIV.P. 50(a). We review the denial of j.m.l. de novo. Green v. Adm'rs of the Tulane Educ. Fund, 284 F.3d 642, 653 (5th Cir.2002). We also review de novo a district court's application of state law. Salve Regina College v. Russell, 499 U.S. 225, 231, 111 S.Ct. 1217, 113 L.Ed.2d 190 (1991).

Finally, we uphold a jury verdict if it is supported by evidence of the type and quality that fairly supports the verdict, even if the evidence would support other outcomes. Gann v. Fruehauf Corp., 52 F.3d 1320, 1326 (5th Cir.1995). The question is whether there was evidence permitting the jury to conclude that Exxon breached a term of the franchise agreement.

III.

Texas law, which tracks the Uniform Commercial Code, implies a good faith component in any contract with an open price term. Specifically,

[t]he parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time of delivery ... A price to be fixed by the seller or by the buyer means a price for him to fix in good faith.

TEX. COM. & BUS.CODE ANN. § 2.305 (Vernon 2002). The parties agree that the franchise agreement term governing the purchase of gasoline is an open price term.

The meaning of "good faith" is further defined in several other sections of the code. The definitions section explains good faith as "honesty in fact in the conduct or transaction concerned." TEX. COM. & BUS.CODE ANN. § 1.201(19) (Vernon 2002). Wherever the term "good faith" is used throughout the code, it means "as least what is here stated." TEX. COM. & BUS.CODE ANN. § 1.201(19) cmt. 19 (Vernon 2002).

Additional meaning to the term may be added within a given article. Id. Section 2.103, regarding merchants, further explains the term: "`Good faith' in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade." TEX. COM. & BUS.CODE ANN. § 2.103 (Vernon 2002).<sup>3</sup> Finally, "[g]ood faith includes the observance of reasonable commercial standards of fair dealing in the trade if the party is a merchant. (Section 2.103). But, in the normal case a `posted price,' `price in effect,' `market price,' or the like satisfies the good faith requirement." TEX. COM. & BUS.CODE ANN. § 2.305 cmt. 3 (Vernon 2002).

The key disagreement is over what constitutes a breach of the duty of good faith. Exxon contends it has satisfied that duty because it has charged the plaintiffs a DTW price within the range of its competitors' DTW prices, thereby satisfying the "commercial reasonableness" meaning of good faith. Plaintiffs respond that good faith encompasses both objective and subjective duties. Even if Exxon is right, and its prices are within the range of its competitors', the argument runs, a subjective intent to drive the franchisees out of business would abridge the good faith duty of the open price term.

The pivotal provision is comment 3 to § 2.305. Some of the language of comment 3 and §...